Canada’s household debt levels are the highest in the world. One of the biggest factors in most Canadian’s household debt is housing costs. High house prices lead to large, and often, unaffordable mortgages. With interest rates on the rise, it is imperative that all potential buyers truly understand how much they can afford before buying a home in Markham, or anywhere else in the GTA. Here’s how to do it.
The first step before even stepping one foot in a Markham home for sale is to get pre-approved. While many believe the banks give you more than you can afford, that isn’t totally true. There are limits to your debt levels and housing costs. Your gross debt service (GDS) can be no more than 30% to 32% of your annual income. Your total debt service (TDS) ratio can’t exceed 40% of your gross annual income. While your pre-approval number is a good indication of the maximum of what you can afford, it doesn’t tell you what you can truly afford.
Understand the new mortgage rules
In 2018, new mortgage rules will take effect that will lessen the buying power of many buyers in Markham. These mortgage rules will ensure that a buyer will still be able to afford their home if there are interest rate hikes. This almost means that you will get approved for less than you can actually afford, which is both a blessing and curse for some buyers.
Evaluate your lifestyle
The banks don’t know that you like to take frequent trips to Montego Bay or that buying shoes is an obsession. The bank only considers your income and your debt and not your spending. It is up to you as a potential buyer to evaluate your spending habits and decide how much you want to reign it back. If travel is important to your life, don’t max out your mortgage. Being “house poor” means that you can’t afford anything else, but your living expenses and it is not a great place to be, but if home ownership is your top priority, you need to make a commitment to the fact that your spending is going to have to go down.
Make a budget
A budget can give you a good understanding of where you do spend and what you’ll have to spend when you have a home. But, you need to be realistic. Owning a home can be expensive and you need to recognize what these expenses are. They include:
· Mortgage payments
· Home insurance
· Property taxes
· Utility costs
· Home maintenance costs
· Buffer for unexpected repairs
Some home sellers in Markham will release some of this information to you, letting you view utility bills and property tax statements so you get a good number in your head of what you’ll spend.